Income Tax. Individual & Corporate. Revenue Impact of Exemptions

Transcription

1 EXHIBIT F-2 Individual & Corporate Income Tax Revenue Impact of Exemptions Arkansas Tax Reform and Relief Legislative Task Force April 26, 2018 Arkansas Department of Finance and Administration

2 Overview of Income Tax Exemption Presentation Revenue estimates are prepared by DFA s Office of Income Tax Administration. Where actual return data can be used to quantify the exemption, DFA s Office of Income Tax used actual return data. Presentation provides the estimated value of various exemptions to the Arkansas income tax and is not an official list of all exemptions. Income Tax Exemption Presentation 2

3 Overview Exemptions are grouped in categories as a guide and do not represent official categories in Arkansas statutes or rules. When appropriate, individually-enacted exemptions may be combined, even if enacted in different years. Values of tax exemptions are often difficult to measure and only as good as the data available. Whenever possible, information from Arkansas tax systems was used. However, the great majority of estimates rely upon external sources including federal statistical data, published industry data, and various other sources, often necessitating assumptions. Some values of exemptions could not be calculated or estimated at this time because of limited federal data resources and other data sets on which to evaluate exemption amounts. Income Tax Exemption Presentation 3

4 Overview Some values of exemptions are currently unknown because there is no record of the amount of income that was not taxed provided to the Department. The estimated value of an exemption measures the tax collection foregone on that activity in isolation, as it existed in CY2016, and not on how that activity may change if the exemption was repealed. Therefore, it is not necessarily the same as the revenue gain that would occur if the exemption was repealed. Each exemption is considered independently and may not take into account overlap between exemptions just as in the Sales and Use Tax Exemption presentation. When an overlap is identified and estimated, the net impact is noted. Income Tax Exemption Presentation 4

5 Overview Estimates are a snapshot of activity for one year. Value of exemptions can vary widely from year to year. This is especially true in Corporate Income Tax where the tax revenue itself varies significantly year to year. Other exemptions may increase or decrease due to longer term industry trends or demographic trends. Income Tax Exemption Presentation 5

6 Overview: Differences Between Estimates and DFA Fiscal Impact Statements Exemption estimates differ from other DFA Fiscal Impact Statements used in policymaking in that overlapping laws and exemptions have not been considered for these estimates. Specific legislative proposals for selected changes in exemptions would require a detailed legal analysis, revenue update, and projection on future budgets. Income Tax Exemption Presentation 6

7 Arkansas Income Tax Overview

8 Income Tax History The income tax was originally levied by the Income Tax Act of 1929 by Act 118 of The Arkansas Supreme Court upheld Act 118 of 1929 concluding that the entire income of every resident of Arkansas, regardless of source, was taxable. Morgan v. Cook, 211 Ark. 755, 202 S.W.2d 355 (1947). See also Stanley v. Gates, 179 Ark. 886, 19 S.W.2d 1000 (1929). The Individual Income Tax levies the tax on the net income of Arkansas residents and non-residents who earn income from an Arkansas source in one of three different tax tables based on the gross income of the taxpayer. The current Corporate Income Tax was enacted by Act 129 of 1941 and levies the tax on the net income of a corporation, domestic or foreign, that does business in Arkansas. Income Tax Exemptions Presentation 8

9 Income Tax Collection - FY2017 As part of the overall Tax Collections for Fiscal Year, 2017, Income Taxes accounted for 52% of State general revenue. FY 2017 Distribution of General Revenue by Amount (Million $) Net of Refunds INDIVIDUAL INCOME CORPORATE INCOME INSURANCE SALES & USE TAX ALCOHOLIC BEV. & TOBACCO ALL OTHER COLLECTIONS Income Tax Exemptions Presentation 9

10 Income Tax Collections - FY2017 As part of the overall Tax Collections for Fiscal Year 2017, Income Taxes accounted for 39% of State general and special revenue. FY 2017 Distribution of General and Special Revenue Net of Refunds (Million $) INDIVIDUAL INCOME CORPORATE INCOME SALES & USE TAX MOTOR FUEL ALCOHOLIC BEV. & TOBACCO INSURANCE ALL OTHER Income Tax Exemptions Presentation 10

11 Individual Income Applicability Individual Income Tax is levied on the net income of Arkansas residents. Nonresidents and part-year residents are subject to the Individual Income Tax if there is income earned from Arkansas sources that is reasonably allocated to Arkansas. Net income is derived from adjusting gross income by any allowed deductions. Ark. Code Ann [G]ross income includes [g]ains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid[.] Ark. Code Ann (a)(1). Nonresident income is allocated to Arkansas pursuant to the calculations required in Ark. Code Ann Arkansas Individual Income Tax has three separate tax tables that have a different set of brackets depending on the taxpayer s net income and are annually adjusted for inflation. Income Tax Exemptions Presentation 11

12 Individual Income Tax Brackets For individuals with net income of $21,699 or less From Less Than or Equal To Rate $0 $4, % $4,300 $8, % $8,400 $12, % $12,600 $21, % Income Tax Exemptions Presentation 12

13 Individual Income Tax Brackets Total Taxpayers and Tax Paid based on CY2016 Returns Under $21,000 Income Bracket Tax Rate Current Revenue Number of Taxpayers Affected $0 - $4, % $4,300 - $8, % $8,400 - $12, % $12,600 - $20, % $21,258,786 $43,234,666 $46,138,303 $46,938, , , , ,108 A taxpayer having a net taxable income of $20,998 would be affected and counted in each range of the Under $21,000 income bracket. Sub Total $157,570, % of Individual Income Taxes Income Tax Exemptions Presentation 13

14 Individual Income Tax Brackets For individuals with net income of $21,699 or less for tax years beginning on or after January 1, 2019 From Less Than or Equal To Rate $0 $4, % $4,300 $8,399 2% $8,400 $12,599 3% $12,600 $21, % Income Tax Exemptions Presentation 14

15 Individual Income Tax Brackets For taxpayers with net income between $21,700 and $77,399 From Less Than or Equal To Rate $0 $4, % $4,300 $8, % $8,400 $12, % $12,600 $20, % $21,000 $35,099 5% $35,100 $77,399 6% Income Tax Exemptions Presentation 15

16 Individual Income Tax Brackets Total Taxpayers and Tax Paid based on CY2016 Returns $21,000 to $75,000 Income Bracket Tax Rate Current Revenue Number of Taxpayers Affected $25,560,313 $0 - $4, % 698,941 $4,300 - $8, % $67,720, ,941 $8,400 - $12, % $97,119, ,941 $12,600 - $20, % $249,761, ,941 $21,000 - $35, % $342,522, ,941 $35,100 - $75, % $324,027, ,720 This count includes all taxpayers between the net income ranges of $21,000 and $75,000. These taxpayers are isolated to net income of $35,100 to $75,000. Sub Total $1,106,712, % of Individual Income Taxes Income Tax Exemptions Presentation 16

17 Individual Income Tax Brackets For Taxpayers with net income of $77,400 and over There is an adjustment for individuals just over $77,399 to reduce the cliff between the middle and upper tax tables From Less Than or Equal To Rate $0 $4, % $4,300 $8, % $8,400 $12, % $12,600 $20, % $21,000 $35,099 6% $35,100 and above 6.9% Income Tax Exemptions Presentation 17

18 Individual Income Tax Brackets Total Taxpayers and Tax Paid based on CY2016 Returns Above $75,000 Income Bracket Tax Rate Current Revenue Number of Taxpayers Affected $0 - $4,299 $4,300 - $8, % 2.5% $5,294,530 $14,027, , ,482 The count of taxpayers in this range are all the same because this bracket is only for those taxpayers with net taxable income $8,400 - $12, % $20,117, ,482 greater than $75,000. All ranges in this bracket are affected by a taxpayer net $12,600 - $20, % $51,735, ,482 taxable income of greater than $75,000. $21,000 - $35, % $115,792, ,482 $35,100 and over 6.9% $1,548,834, ,482 Sub Total 58.14% $1,755,801, % of Individual Income Taxes Income Tax Exemptions Presentation 18

19 Corporate Income Tax Applicability Corporate Income Tax is levied on the net income of a corporation doing business in Arkansas. Net income is derived from adjusting gross income by any allowed deductions. Ark. Code Ann [G]ross income includes [g]ains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid[.] Ark. Code Ann (a)(1). Corporations with income from activities both within and without Arkansas apportion their income pursuant to Ark. Code Ann through This apportionment is a three factor apportionment based on sales, payroll, and property factors of the entire corporation compared to Arkansas. Income Tax Exemptions Presentation 19

20 Corporate Income Tax Applicability There is one tax table for the levy of corporate income tax From Less Than or Equal To Rate $0 $3,000 1% $3,001 $6,000 2% $6,001 $11,000 3% $11,001 $25,000 5% $25,001 $100,000 6% $100,000 and above 6.5% Income Tax Exemptions Presentation 20

21 Arkansas Individual Income Tax Section Revenue Impact of Exempted Income, Deductions from Income, Exclusions from Income, and Individual Tax Credits

22 Individual Income Tax - Exempted Income AR Capital Development Company income of a capital development company. Ark. Code Ann Achieving a Better Life Experience Program (ABLE) interest, dividends, and capital gains from funds invested in the ABLE Program and qualified distributions. Ark. Code Ann Estimated Impact of less than $1M Military Income pay or allowances received by an active duty member of the armed services and combat zone compensation. Ark. Code Ann $8.3M CY2016 Income Tax Exemptions Presentation 22

23 Individual Income Tax - Exempted Income Retirement Income the first $6,000 of qualified retirement income is exempt. Ark. Code Ann $224.8M CY2016 Capital Gain Income 100% of gains over $10M. Less than $10M, then 50% of gains from to , 45% from to , and 50% on and after Ark. Code Ann (b)(2, 3) $53.7M Total Impact CY2016 Electronic Games of Skill gambling winnings received from electronic games of skill are not included as income and taxed at a flat 3% rate that is remitted to DFA. Ark. Code Ann (f)(1) No revenue lost. Income Tax Exemptions Presentation 23

24 Individual Income Tax Deductions from Income Border city exemption. (Texarkana) Ark. Code Ann (b)(14) $20.3M CY2016* *Partially offset by 1.0% special sales tax - $4.5M in collections CY2016 Contributions to a long-term intergenerational trust. Ark. Code Ann (b)(16) $6K CY2016 Individuals With Disabilities for the care of individuals with disabilities. Ark. Code Ann $380K CY2016 Income Tax Exemptions Presentation 24

25 Individual Income Tax Deductions from Income Standard Deduction $2,200 per taxpayer beginning in tax year Ark. Code Ann $56.7M CY2016 Volunteer Firefighter amounts paid by volunteer firefighters and not reimbursed by the fire department to purchase firefighting equipment up to $1,000 a year. Ark. Code Ann $16K CY2016 Organ Donor Deduction up to $10,000 for living human organ donation. Ark. Code Ann $5K CY2016 Income Tax Exemptions Presentation 25

26 Individual Income Tax Exclusions from Income Gifts value of property acquired by gift, bequest, devise, or descent. Ark. Code Ann (b)(4) Workers' Comp, Social Security, Railroad Retirement, and Unemployment. Ark. Code Ann (b)(6) $430M Estimate based on current Federal information Parsonage Allowance rental value of parsonages. Ark. Code Ann (b)(9) Income Tax Exemptions Presentation 26

27 Individual Income Tax Exclusions from Income Long-Term Intergenerational Trust interest, dividends, and capital gains recognized on a long-term intergenerational trust. Ark. Code Ann (b)(21) Individual Development Account interest and dividends earned on an individual development account and matching funds deposited. Ark. Code Ann (b)(22) Income Tax Exemptions Presentation 27

28 Individual Income Tax Tax Credits Phenylketonuria and Other Metabolic Disorders allows a credit up to $2,400 per year, per child for expenses on the purchases of medically necessary foods and low protein modified food products. Ark. Code Ann $74K CY2016 Personal Tax Credits allows for $26 credit for each taxpayer, dependent, over 65, 65 special, blind, deaf, head of household/qualifying widower. The 65 special may be claimed by any taxpayer 65 or older that is not claiming a retirement exclusion. Ark. Code Ann $76M CY2016 Individuals with Developmental Disabilities allows a $500 credit for taxpayers with dependents that have developmental disabilities. Ark. Code Ann $4.3M CY2016 Income Tax Exemptions Presentation 28

29 Individual Income Tax Tax Credits Other State Tax Credit allows a credit to Arkansas residents for income taxes paid to another state on income taxed by both states. Ark. Code Ann $56.3M CY2016 Political Contributions allows up to $50 for contributions made to an Arkansas political candidate, party or action committee. Passed by Arkansas voters on 11/05/1996 $759K CY2016 Low Income Tax Credit allows qualifying taxpayers to use the Low Income Tax Table to determine the tax liability. Ark. Code Ann (f) Income Tax Exemptions Presentation 29

30 Arkansas Corporate Income Tax Section Revenue Impact of Exempted Income, Deductions from Income, and Exclusions from Income

31 Corporate Income Tax - Exempted Income Insurance Companies domestic Life and Disability Insurance Companies and Foreign Insurance Companies. Ark. Code Ann (a)(2) *Pays the Insurance Premium tax. Farmers or other Mutual Hail, Cyclone, And Fire Insurance Companies certain insurance companies if 85% or more of the income consists of assessments, dues, and fees collected from members for the purpose of meeting losses and expenses. Ark. Code Ann (a)(6) *Pays the Insurance Premium tax. Churches income from interest on the savings and investments from dedicated funds, from the sale of dedicated church property, and from rental of dedicated church property. Ark. Code Ann Income Tax Exemptions Presentation 31

32 Corporate Income Tax - Exempted Income Fraternal Benefit Societies, Orders, or Associations Organizations and Fraternities Operating Under the Lodge System. Ark. Code Ann (a)(1) Cemetery Corporations - cemeteries pay no income tax. Ark. Code Ann (a)(3) Business Leagues, Chambers of Commerce, Boards of Trade Not Organized for Profit nonprofit business leagues, chambers of commerce, and boards of trade. Ark. Code Ann (a)(4) Civic leagues nonprofit Civic leagues or organizations operated for the promotion of social welfare. Ark. Code Ann (a)(5) Income Tax Exemptions Presentation 32

33 Corporate Income Tax - Exempted Income Ditch or Irrigation Companies mutual ditch or irrigation companies if 85% or more of the income consists of assessments, dues, and fees collected from members for the purpose of meeting losses and expenses. Ark. Code Ann (a)(6) Mutual or Cooperative Telephone Companies mutual or cooperative telephone companies if 85% or more of the income consists of assessments, dues, and fees collected from members for the purpose of meeting losses and expenses. Ark. Code Ann (a)(6) Farmers', Fruit Growers', And Like Organizations farmers and fruit growers organizations organized and operated as sales agents for the purpose of marketing the products of members and returning to the members the proceeds of sales on the basis of the quantity of produce furnished by the member. Ark. Code Ann (a)(7) Income Tax Exemptions Presentation 33

34 Corporate Income Tax - Exempted Income Labor, agricultural, or horticultural organizations. Ark. Code Ann (a)(8) Corporations, trusts, community chest, fund or foundation corporations, trusts, community chest, fund, or foundations organized and operated for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. Ark. Code Ann (a)(9) Political organizations. Ark. Code Ann (a)(10) Nonprofit Investment Income investment income of a nonprofit organization. Ark. Code Ann Income Tax Exemptions Presentation 34

35 Corporate Income Tax - Exempted Income Windmill Blade Manufacturer exempts a qualified windmill blade manufacturer. Ark. Code Ann Unable to disclose revenue impact Windmill Blade and Windmill Components limited exemptions for qualified windmill blade and windmill component manufacturers. Ark. Code Ann Unable to disclose revenue impact Biofuels qualified drop-in biofuels manufacturers. Ark. Code Ann Dividends received from a subsidiary at least 80% owned. Ark. Code Ann (b)(8) Income Tax Exemptions Presentation 35

36 Corporate Income Tax Deductions from Income Net Operating Losses Steel Manufacturers carryover up to 10 years. Ark. Code Ann $0 CY2016 Reserve for bad debts bad debt expense by banks and savings & loans. Ark. Code Ann Steel Mill Incentive invest at least $120 million in a steel mill in Arkansas. Ark. Code Ann Income Tax Exemptions Presentation 36

37 Corporate Income Tax Exclusions from Income Church Passive Investment income from rentals or gains on sales of dedicated property held only as a passive investment by a church. Ark. Code Ann (b) Income Tax Exemptions Presentation 37

38 Arkansas Individual and Corporate Income Tax Section Revenue Impact of Exempted Income and Deductions from Income

39 Individual and Corporate Income Tax Exempted Income Arkansas Amendment 82 bonds issued and interest on bonds exempt for Amendment 82 projects. Ark. Code Ann Venture Capital Investment 100% of net capital gain from a venture capital investment. Ark. Code Ann (d) Small business stock capital gains incentive to invest in small business stock. Ark. Code Ann Small Business Growth Act of 1985 bonds issued and interest on the bonds. Ark. Code Ann Corporate Less than $1M, Individual Less than $1M CY2016 Income Tax Exemptions Presentation 39

40 Individual and Corporate Income Tax Exempted Income Industrial Development Corp interest on bonds or other obligations under the act. Ark. Code Ann Corporate Less than $1M, Individual Less than $1M CY2016 AR Development Finance Corp interest on bonds or other obligations under the act. Ark. Code Ann Corporate Less than $1M, Individual Less than $1M CY2016 Agricultural Disaster Programs Payments. Ark. Code Ann Corporate Less than $1M, Individual Less than $1M CY2016 Income Tax Exemptions Presentation 40

41 Individual and Corporate Income Tax Deductions from Income Trade and business deductions including gambling losses. Ark. Code Ann (b)(1) Certain deductions of life tenants and income beneficiaries of property. Ark. Code Ann (b)(6) Related Party Expenses interest and intangible-related expenses paid to related party. Ark. Code Ann (g)(1) Capitalized Costs inclusion in inventory costs of certain expenses. Ark. Code Ann (a) Income Tax Exemptions Presentation 41

42 Individual and Corporate Income Tax Deductions from Income Start-Up Costs capitalization and amortization of corporate start-up costs. Ark. Code Ann (b) Organizational expenses capitalization and amortization of corporation organization expenses. Ark. Code Ann (c) Dividend Paid by qualified "non-captive" real estate investment trusts. Ark. Code Ann Small Business Guaranty Fees amounts paid to the U.S. Small Business Administration as a guaranty fee. Ark. Code Ann Small Business Stock Capital Gains sale of qualified small business stock. Ark. Code Ann Income Tax Exemptions Presentation 42

43 Federal Tax Provisions Available to Arkansas Taxpayers Revenue Impact of Exempted Income, Deductions from Income, Exclusions from Income, and Individual Tax Credits

44 Federal Tax Provisions Exempted Income Military Spouse Residency Relief Act, Public Law income of a military member's spouse. Individual Only Trusts certain trusts forming part of qualified deferred compensation plans of employers for benefit of employees as described in IRC 401(a). Ark. Code Ann Individual Only Foreign Income Exclusion certain amounts of foreign earned income and housing costs. Ark. Code Ann Individual Only Child Support pursuant to IRC 71. Ark. Code Ann (a) Individual Only Income Tax Exemptions Presentation 44

45 Federal Tax Provisions Exempted Income Coverdell Education Savings Account pursuant to IRC 530. Ark. Code Ann (a) Individual Only Interest exempts Interest on U.S., State of Arkansas or local obligations. Ark. Code Ann (b)(5) Individual Only Disaster Response out-of-state businesses and employees from certain taxes and regulations during a disaster period. Ark. Code Ann to 109. Corporate Less than $1M, Individual Less than $1M CY2016 Income Tax Exemptions Presentation 45

46 Federal Tax Provisions Deductions from Income Miscellaneous Itemized Deductions. Ark. Code Ann Corporate -, Individual $26M CY2016 Tuition paid to post-secondary educational institutions. Ark. Code Ann Corporate -, Individual $4.1M CY2016 Trade and business deductions of employee. Ark. Code Ann (b)(2) Corporate and Individual Employee expenses reimbursed by employer. Ark. Code Ann (b)(3) Corporate and Individual Income Tax Exemptions Presentation 46

47 Federal Tax Provisions Deductions from Income Loss from the sale or exchange of property deduction. Ark. Code Ann (b)(4) Corporate and Individual Property held for the production of rents and royalties. Ark. Code Ann (b)(5) Corporate and Individual Certain portions of lump-sum distributions from pension plans. Ark. Code Ann (b)(7) Corporate and Individual Deferred Compensation Plans pursuant to IRC 72, 219, 401, , , 457 for annuities, retirement savings, and employee benefits. Ark. Code Ann (a)(1) Corporate and Individual Income Tax Exemptions Presentation 47

48 Federal Tax Provisions Deductions from Income Travel Expenses business travel expenses. Ark. Code Ann (a)(3) Corporate and Individual Entertainment Expenses business entertainment, amusement, recreation, meals, travel, etc. pursuant to IRC 274. Ark. Code Ann (b) Corporate and Individual Environmental Expenses cleanup of certain hazardous substances pursuant to IRC 198. Ark. Code Ann (e) Corporate and Individual Handicap and Elderly Expenses to improve access to vehicles and facilities for handicapped and elderly persons pursuant to IRC 190. Ark. Code Ann (f) Corporate and Individual Income Tax Exemptions Presentation 48

49 Federal Tax Provisions Deductions from Income Reforestation Expenses amortization of qualified reforestation expenses pursuant to IRC 194. Ark. Code Ann (h) Corporate -, Individual $21K CY2016 Soil and Water Conservation pursuant to IRC 175. Ark. Code Ann Corporate and Individual Alimony and Separate maintenance payments pursuant to IRC 215. Ark. Code Ann (b)(9) and (10) and (b) Individual Only - $2.2M CY2016 Contributions by self-employed persons to pension, profit-sharing, and annuity plans. Ark. Code Ann (b)(13) Individual Only - $3.2M CY2016 Income Tax Exemptions Presentation 49

50 Federal Tax Provisions Deductions from Income Health insurance costs of self-employed persons. Ark. Code Ann (b)(15) Individual Only - $8.9M CY2016 Contributions to the Arkansas Tax-Deferred Tuition Savings Program. Ark. Code Ann (b)(17) Individual Only - $1.1M CY2016 Medical and Dental Expenses pursuant to IRC 213. Ark. Code Ann (a)(2) Individual Only - $31.8M CY2016 Moving Expenses pursuant to IRC 217. Ark. Code Ann (a)(4) Individual Only - $410K CY2016 Income Tax Exemptions Presentation 50

51 Federal Tax Provisions Deductions from Income Self-Employed Insurance pursuant to IRC 162. Ark. Code Ann (c)(1) Individual Only - $8.9M CY2016 Student Loan Interest pursuant to IRC 221. Ark. Code Ann (d) Individual Only - $4.3M CY2016 Interest forfeited on a premature withdrawal from time savings account or deposit. Ark. Code Ann (b)(11) Corporate less than $1M, Individual $35K CY2016 Payments to an IRA. Ark. Code Ann (b)(12) Corporate less than $1M, Individual $4.2M CY2016 Income Tax Exemptions Presentation 51

52 Federal Tax Provisions Deductions from Income Interest Expense - pursuant to IRC 163. Ark. Code Ann Corporate $262.7M, Individual - CY2016 Taxes. Ark. Code Ann Corporate $215.6M, Individual - CY2016 Charitable Contributions pursuant to IRC 170. Ark. Code Ann and 420 Corporate $6.4M, Individual $80.1M CY2016 Artistic, Literary, and Musical Donations fair market value of donated artistic, literary, and musical creations to museums, art galleries, or nonprofit organizations. Ark. Code Ann Corporate less than $1M, Individual $13K CY2016 Income Tax Exemptions Presentation 52

53 Federal Tax Provisions Deductions from Income Business Expenses for trade or business expenses pursuant to IRC 162. Ark. Code Ann (a)(1) Corporate $8,698.8M, Individual - CY2016 Losses any loss incurred not compensated for by insurance. (Miscellaneous, casualty and theft, and hobby losses). Ark. Code Ann Corporate $19M, Individual $11.3M CY2016 Worthless Debts. Ark. Code Ann Corporate $224.9M, Individual - CY2016 Net Operating Loss carryover for 5 years. Ark. Code Ann Corporate $66.6M, Individual - CY2016 Income Tax Exemptions Presentation 53

54 Federal Tax Provisions Deductions from Income Depreciation depreciation and the expensing of property pursuant to IRC 167,168(a)-(j), 179, and 179A. Ark. Code Ann (a) Corporate $275.4M, Individual - CY2016 Amortization of Goodwill goodwill and other intangibles pursuant to IRC 197. Ark. Code Ann (c) Corporate $26M, Individual - CY2016 Depletion for natural resources, oil, and gas wells pursuant to IRC , 614, 616, and 617. Ark. Code Ann Corporate $10M, Individual - CY2016 Health Savings Account for amounts deposited to HSAs pursuant to IRC 223(a)-(d), (e)(2), (f), and (g). Ark. Code Ann Corporate -, Individual $1.5M CY2016 Claim of Right for a substantial amount held under a claim of right pursuant to IRC 1341(a)(1)-(3) and (b)(2). Ark. Code Ann Corporate Less than $1M, Individual Less than $1M CY2016 Income Tax Exemptions Presentation 54

55 Federal Tax Provisions Exclusions from Income Scholarships, Fellowships, and Grants pursuant to IRC 117. Ark. Code Ann (a)(4) Individual Gain resulting from involuntary conversion of a taxpayer's property pursuant to IRC Ark. Code Ann (b)(1) Individual Gain on sale of principal residence pursuant to IRC 121. Ark. Code Ann (b)(2) Individual Certain Death Benefits proceeds or benefits paid upon the illness or death of the insured person pursuant to IRC 101. Ark. Code Ann (b)(3) Individual Income Tax Exemptions Presentation 55

56 Federal Tax Provisions Exclusions from Income Discharge of Indebtedness pursuant to IRC 108 and Ark. Code Ann (b)(10) Individual Cafeteria Plan payments received under a cafeteria plan pursuant to IRC 125. Ark. Code Ann (b)(11) Individual Dependent Care Assistance pursuant to IRC 129. Ark. Code Ann (b)(12) Individual Group Term Life Insurance pursuant to IRC 79. Ark. Code Ann (b)(13) Individual Income Tax Exemptions Presentation 56

57 Federal Tax Provisions Exclusions from Income Disability and Health Plan pursuant to IRC 1, 104, 105, and 106. Ark. Code Ann (b)(14) Individual Moving Expenses pursuant to IRC 82. Ark. Code Ann (b)(15) Individual Meals and Lodging pursuant to IRC 119. Ark. Code Ann (b)(16) Individual Cost-Sharing Payments certain cost-sharing payments pursuant to IRC 126 primarily for the purpose of conserving soil, water or restoring environment, forests, and protecting wildlife habitats. Ark. Code Ann (b)(17) Individual Income Tax Exemptions Presentation 57

58 Federal Tax Provisions Exclusions from Income Foster Care pursuant to IRC 131. Ark. Code Ann (b)(18) Individual Fringe Benefits pursuant to IRC 132. Ark. Code Ann (b)(19) Individual Education Expenses paid by an employer pursuant to IRC 127. Ark. Code Ann (b)(20) Individual Medicare Plus Choice MSAs pursuant to IRC 138. Ark. Code Ann (b)(23) Individual Income Tax Exemptions Presentation 58

59 Federal Tax Provisions Exclusions from Income Life Insurance, Endowment, and Annuity Contracts certain proceeds received under life insurance, endowment, and annuity contracts pursuant to IRC 72. Ark. Code Ann (b)(24) Individual Employer's Adoption Assistance Program benefits received pursuant to IRC 137. Ark. Code Ann (b)(25) Individual Health Savings Account - contributions by an employer to an employee's HSA. Ark. Code Ann (b)(26) Individual Income Tax Exemptions Presentation 59

60 Federal Tax Provisions Exclusions from Income Military Benefits qualified military benefits pursuant to IRC 134. Ark. Code Ann (b)(27) Individual IRA Charitable Distributions for charitable purposes pursuant to IRC 408(d)(8). Ark. Code Ann (b)(28) Individual Less than $1M CY2016 Small Business Stock gain from certain small business stock pursuant to IRC Ark. Code Ann (c) Individual Income Tax Exemptions Presentation 60

61 Federal Tax Provisions Individual Tax Credits Adoption Expenses allows up to 20% of the federal tax credit allowed pursuant to IRC 23 and 36C. Ark. Code Ann Individual Only - $975K CY2016 Child Care allows up to 20% of the federal tax credit allowed pursuant to IRC 21 Ark. Code Ann (a) and (b). Individual Only - $6M CY2016 Early Childhood Program allows a refundable credit up to 20% of the federal tax credit allowed for an approved early childhood facility pursuant to IRC 21 Ark. Code Ann (c). Individual Only - $85K CY2016 Income Tax Exemptions Presentation 61